ARM Update

April 9, 2018

Yield spreads between new-issue hybrid ARMs and Treasuries were stable this past week and have managed to lag the tightening experienced in fixed-rate MBS.

As expected, March was one of the weaker months on record in terms of issuance, with volumes totaling just $991mm, a decline of $273mm from the previous month.  There was a noticeable decline of over 30% from the previous month for 3/1s and 5/1s, while 7/1s continued to make up the largest component of originations at 40%. Supply should rebound in April based upon current loan originations.

March prepayment speeds increased across most of the MBS market. Technical factors drove most of the increase, as day count (+3) alone drove about a 10% fractional increase.  Prepayments were mixed for ARMs and the magnitude of the increase varied across MTR buckets.  In general it appears that longer reset ARMs increased less, while post-resets increased the most, speeding up 5CPR on the month.

In aggregate, Fannie ARM speeds increased 3.8CPR to 21.3CPR.  Libor-based Fannie 5/1s increased 4.2CPR to 26.3CPR, 7/1s climbed 3.7CPR to 18.0CPR, and 10/1s rose 1.5CPR to 13.4CPR. In the Freddie sector, 5/1s, 7/1s, and 10/1s paid 27.6CPR (+5.0CPR), 17.2CPR (+3.6CPR), and 12.6CPR (+1.3CPR), respectively.

Ginnie ARM speeds were less volatile, as most of the increase can be attributed to technical factors.  In aggregate, Ginnie speeds increased 13.2% or 2.6CPR, to 22.3CPR.


Last week, activity was primarily focused on the following:


Metrics for some commonly traded structures are below:





Michael S. Erhardt, CPA

Senior Vice President

Investment Strategist

Vining Sparks, IBG

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